I think this is because of fog mode. From ye olde Morrowind Grahpics Extender help file:See also the slight less ye olde http://sourceforge.net/apps/mediawiki/morrgraphext/index.php?title=Render_State#Fog_mode.
It is not a fog mode problem, no difference cycling fog modes from MGE/starting MGE XE with different fog modes. This http://www.youtube.com/watch?v=3NNtISjbEyQ is with MGE XE, http://www.youtube.com/watch?v=XgTlH1_NlgQ with MGE
MGE (XE) takes over where Morrowind's fog begins so that distant objects will appear at the sides of the screen when one looks away from them but disappear when looked at directly.
As MGE objects do not disappear when rotating view, I was thinking about some sort of bug/miscalculation in MGE XE instead of a known planned compromise for better performance/display like the popping vs fading method seems to be.
Well, if this is how MGE XE is supposed to work, fine, I will live with it, MGE XE is less crashing, shaders and waves are comparable or better than MGE and shadows are a great plus, so it is a definite improvement anyway.